Chapter 11, Problem 11.10E

1.

To determine

Introduction: Cost allocation is a process of assigning or allocating indirect costs to every unit using a predetermined overhead rate. The predetermined overhead rate is determined by dividing the estimated total cost by the estimated activity base.

The allocation of fixed administrative expenses among the three restaurants for this year.

2.

To determine

Introduction: There are two types of changes which are positive changes and negative changes. A positive change will reflect an increase in the cost allocated to the respective restaurant whereas a negative change reflects a decrease in fixed cost allocated to the department.

The change in each restaurant’s allocated costs from last year to this year.

3.

To determine

Introduction: A cost allocation base is referred to the factors or basis upon which an organization allocates its overhead costs. The major cost allocation base can be direct labor used, direct material used, machine hours used, an area used by each department, sales, profit earned, and so on.

To discuss:

The usefulness of sales dollars as an allocation base.